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Steel Connect, Inc. EBITDA jumped on 265% and EBITDA Margin increased on 9.4 pp from 3.3% to 12.7%

09/30/2020 • About Steel Connect, Inc. ($STCN) • By InTwits

Steel Connect, Inc. reported FY2020 financial results today. Here are the key drivers of the company's long term financial model:
  • EBITDA Margin is quite volatile: 12.7% in FY2020, 3.3% in FY2019, 4.5% in FY2018, -2.6% in FY2017, -7.1% in FY2016
  • Steel Connect, Inc. has high CAPEX intensity: 5 year average CAPEX/Revenue was 16.3%. At the same time it's in pair with industry average of 18.8%
  • CAPEX is quite volatile: $12m in FY2020, $15m in FY2019, $488m in FY2018, $5m in FY2017, $8m in FY2016
  • The company has business model with low profitability: ROIC is 7.0%
  • It operates with high leverage: Net Debt/EBITDA is 3.6x while industry average is 2.4x
Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.

Revenue and profitability


Steel Connect, Inc.'s Revenue decreased on 4.5%. Revenue decline showed acceleration in FY20Q4 - it was 19.4% YoY. During FY2016-FY2020 Revenue growth topped in FY2018 at 47.8% and was decelerating since that time. Revenue decline happened at the same time with EBITDA margin expansion. EBITDA Margin increased on 9.4 pp from 3.3% to 12.7% in FY2020. EBITDA Margin stuck to a growing trend at 4.6 pp per annum in FY2016-FY2020.

Gross Margin increased on 2.6 pp from 18.3% to 20.8% in FY2020. Gross Margin followed a growing trend at 4.1 pp per annum in FY2016-FY2020. SG&A as a % of Revenue decreased on 4.4 pp from 17.6% to 13.2% in FY2020.

Net Income margin increased on 7.5 pp from -8.1% to -0.68% in FY2020.

Investments (CAPEX, working capital and M&A)


The company's CAPEX/Revenue was 1.5% in FY2020. CAPEX/Revenue showed almost no change from FY2017 to FY2020. Average CAPEX/Revenue for the last three years was 26.3%.

Return on investment


The company operates at low but positive ROIC (7.0%) and negative ROE (-14.6%). ROIC jumped on 11.8 pp from -4.7% to 7.0% in FY2020. ROE jumped on 71.3 pp from -85.9% to -14.6% in FY2020. ROIC stuck to a growing trend at 6.7 pp per annum in FY2016-FY2020.

Leverage (Debt)


Debt level is 3.6x Net Debt / EBITDA and 4.4x Debt / EBITDA. Net Debt / EBITDA dropped on 9.2x from 12.8x to 3.6x in FY2020. Debt surged on 14.4% while cash jumped on 133%.

Steel Connect, Inc. has no short term refinancing risk: cash is higher than short term debt (382.4%).

Management team


Steel Connect, Inc.'s CEO is Warren G Lichtenstein. Warren G Lichtenstein has 4 years tenure with the company. The company's CFO is Douglas B Woodworth. Douglas B Woodworth has 11 months years tenure at the company.

Financial and operational results


FY ended 07/31/2020

Steel Connect, Inc. ($STCN) key annual financial indicators

mln. $201620172018201920202020/2019
P&L
Revenue459.0436.6645.3819.8782.8-4.5%
Gross Profit24.836.4101.3149.7163.08.8%
SG&A57.654.2101.7144.1103.3-28.3%
EBITDA-32.5-11.628.827.299.5265.5%
Net Income-61.3-25.836.7-66.7-5.3
Balance Sheet
Cash130.8110.792.132.575.9133.2%
Short Term Debt0.00.056.05.719.8246.2%
Long Term Debt57.259.8397.4375.9416.710.9%
Cash flow
Capex7.94.7487.614.512.1-17.0%
Ratios
Revenue growth-18.3%-4.9%47.8%27.1%-4.5%
EBITDA growth548.5%-64.4%-349.0%-5.4%265.5%

Gross Margin5.4%8.3%15.7%18.3%20.8%2.6%
EBITDA Margin-7.1%-2.6%4.5%3.3%12.7%9.4%
SG&A, % of revenue12.5%12.4%15.8%17.6%13.2%-4.4%
Net Income Margin-13.4%-5.9%5.7%-8.1%-0.7%7.5%
CAPEX, % of revenue1.7%1.1%75.6%1.8%1.5%-0.2%

ROIC-21.6%-14.5%-2.3%-4.7%7.0%11.8%
ROE-53.2%-34.7%41.5%-85.9%-14.6%71.3%
Net Debt/EBITDA12.6x12.8x3.6x-9.2x

Steel Connect, Inc. ($STCN) key quoterly financial indicators

mln. $FY20Q1FY20Q2FY20Q3FY20Q4 YoY change
P&L
Revenue225215177165 4.7%4.5%-8.6%-19.4%
EBITDA28251626 60.8%66.4%6.4%-
Net Income5-4-6-0 ----
Balance Sheet
Cash41309076 -50.6%-67.5%342.9%133.2%
Short Term Debt6211820 -89.2%-62.2%216.3%246.2%
Long Term Debt375422421417 -5.4%6.8%11.8%10.9%
Ratios
Gross Margin19.7%21.0%18.9%24.3% 1.9%2.8%-0.1%6.1%
EBITDA Margin 12.3% 11.5% 9.2% 15.8% 4.3%4.3%1.3%25.6%
Net Income Margin 2.1% -1.7% -3.5% -0.2% 5.6%4.0%1.5%18.4%

Peers in Data Processing & Outsourced S


Below we provide Steel Connect, Inc. benchmarking against other companies in Data Processing & Outsourced S industry for the last 5 years. We show data for the top-5 companies by key financial metric together with the median value for all the companies in the industry.

Top companies by Revenue growth, %

Top  FY2016 FY2017 FY2018 FY2019 FY2020
Net 1 UEPS Technologies, Inc. ($UEPS)-3.3%0.5%-41.1%-58.2%
 
Median (1 company)7.8%11.8%7.4%-41.1%-58.2%
Steel Connect, Inc. ($STCN)--4.9%47.8%27.1%-4.5%


Top companies by Gross margin, %

Top  FY2016 FY2017 FY2018 FY2019 FY2020
Net 1 UEPS Technologies, Inc. ($UEPS)50.9%52.1%50.3%40.3%27.8%
 
Median (1 company)39.5%39.5%41.0%40.3%27.8%
Steel Connect, Inc. ($STCN)5.4%8.3%15.7%18.3%20.8%


Top companies by EBITDA margin, %

Top  FY2016 FY2017 FY2018 FY2019 FY2020
Net 1 UEPS Technologies, Inc. ($UEPS)26.2%22.7%15.4%-21.1%-12.4%
 
Median (1 company)21.3%21.1%19.4%-21.1%-12.4%
Steel Connect, Inc. ($STCN)-7.1%-2.6%4.5%3.3%12.7%


Top companies by CAPEX/Revenue, %

Top  FY2016 FY2017 FY2018 FY2019 FY2020
Net 1 UEPS Technologies, Inc. ($UEPS)6.1%1.8%1.6%2.6%3.9%
 
Median (1 company)3.2%2.9%3.0%2.6%3.9%
Steel Connect, Inc. ($STCN)1.7%1.1%75.6%1.8%1.5%


Top companies by ROIC, %

Top  FY2016 FY2017 FY2018 FY2019 FY2020
Net 1 UEPS Technologies, Inc. ($UEPS)18.7%13.8%7.0%-15.4%-9.1%
 
Median (1 company)11.7%10.7%12.1%-15.4%-9.1%
Steel Connect, Inc. ($STCN)-21.6%-14.5%-2.3%-4.7%7.0%